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7/30/2019 Due Dilligence - VCU
1/13
3/25/20
Researcher & Educator
Due Diligence
In Vietnamese PracticeProfessional Auditors - PA
AFA Researcher & Educator
Information
First Name: Long
Family Name: Phan
Occupation: Auditor, Finance & Banking Consultant
Firm: National Auditing Group
Position: Deputy General Director and Partner
Main Qualification: Master of Business (Monash Uni,Aus), CMA, CPA
Cell: 0906816226 e-mail: [email protected]
Slide 2
Agenda
What you have learnt?
Due diligence in Vietnamese practice
Firm valuation issues
Industry analysis
Case studies
Slide 3
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What you have learnt?
In business, due diligence refers to
investigating all areas of anorganization before agreeing to animportant transaction or merger.
The term "due diligence" first cameinto common use as a result of theUnited States' Securities Act of 1933.
Slide 4
Some DD aspects
Due diligence can be:The examination of a potential target for merger,
acquisition, privatization, or similar corporatefinance transaction normally by a buyer (acquirer).
A reasonable investigation focusing on materialfuture matters.
An investigation on the current practices ofprocess and policies.
An examination aiming to make an acquisitiondecision via the principles of valuation and
shareholder value analysis.Slide 5
Questions asked
An examination being achieved by askingcertain key questions:
How do webuy?
How do westructure theacquisition? How much
do we pay?
Slide 6
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We need information
Key Early Issues and Alarms
Ownership and Capital Structure
Directors and GovernanceManagement
Products and Services
Research & Development and Technology
Markets and Customers
Competition
Marketing, Selling, and Distribution
Slide 7
We need information (contd)
Pricing
Advertising
Public and Investor Relations
Manufacturing
Purchasing and Outsourcing
Human Resources and Employees
Employee Compensation and Benefits
Retirement Plans and ESOPs
Culture of the Business
Legal and Regulatory Affairs
Government Business, Lobbying, and PoliticsSlide 8
We need information (contd)
Asset valuation key issues:
Cash and Cash Management
Accounting: General Questions
Accounting: Policies
Accounts and Notes Receivable
Taxes
Inventory
Fixed and Other Assets
Liabilities
Cost of Sales and Gross Profit
Selling and General and Administrative Expenses
Slide 9
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We need information (contd)
Asset valuation key issues (contd):
Income Recognition and Backlog
Intracompany Transactions Real Estate
Investment Questions and Issues
Off-Balance Sheet Items
Assets and Liabilities Excluded
Financial Ratios and Trends
Slide 10
DD in Vietnamese Practice
Mainly focus on Legal and Financial DueDiligence
Legal DD done by Lawyers
Financial DD done by Auditors
Financial DD is to answer the questionHow much will we pay?
Net asset method
Discounted Cash Flow (DCF)
Slide 11
DD in Vietnamese Practice (Contd)
Main players in Vietnamese DD servicesmarket
Big4
Second tier audit firm Legal firms
Slide 12
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DD in Vietnamese Practice (Contd)
Documents request list for Financial DD
Documents request list for Legal DD
Luvina DD Report
Bigbang DD Report
Slide 13
Key issues in asset valuation in VN
Net asset value = Real assets - Real Liabilities
Real assets
Virtual assets
Real liabilities
Contingent liabilities
Slide 14
Key issues in asset valuation in VN
Real assets
Cash and cash equivalents
Receivables
Inventories Investments
Fixed assets
Slide 15
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Key issues in asset valuation in VN
Real assets (contd)
Cash and cash equivalents Cash count
Bank confirmation
Forex translation
Slide 16
Key issues in asset valuation in VN
Real assets (contd)
Receivables
Validity of account receivables
Aging analysis and provision for bad anddoubtful debts
Assessment of recoverable
Slide 17
Key issues in asset valuation in VN
Real assets (contd)
Inventories
Cost vs. Net realizable value (NRV)
Provision for devalued inventories Investments
Fair value of investments
Listed equity
OTC
Long-term investments
Slide 18
7/30/2019 Due Dilligence - VCU
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Key issues in asset valuation in VN
Real assets (contd)
Fixed assets Net book value = Cost Accumulated depreciation Actual situation
Actual capacity
Market or fair value o FA
Slide 19
Key issues in asset valuation in VN
Real liabilities
Account payables
Short and long-term loans
A/P and loans: confirmations
Tax payables: Tax DD
Employee payables: Human Resource DD
Slide 20
Sample adjustmentsUnit: VND
Amo un t No te s
97,132,348,964
1 Write off the bad debts which were provisioned as doubtful debts at
31 December 2010
-
2 Write off the bad debts which were not provisioned as at 31
December 2010
(1,309,056,022)
3 P ro vis io n f or do ub tfu l d eb ts as at 31 De ce mb er 2010 (2,211,949,185)
4 Write off prepayment to suppl iers which can not be recovered (1,251,759,968)
5 Write off the receivable amount from Boramtek (Contract No. 01-
1996) and can not be c laimed back and PIT
(1,459,815,910)
6 Eliminate the overstated amount in other receivable and payble to
employee
-
7 Reclassification of golf membership fee from other receivables to
long termprepaid expense
-
8 Pro vis io n for de va lu ed in ve nt ory a s a t 31 De ce mb er 2010 (317 ,343 ,2 00 )
9 Wri te o ff a dv an ce t o emp lo ye es w hic h ca n no t be rec ov ered (214 ,394 ,0 82 )
10 Write off depos it which can not be recovered (855,078,334)
11 Provision for severance allowance (1,806,820,982)
12 Record the foreign exchange rate difference to profit and loss
account in 2010
-
(9,426,217,682)
87,706,131,282
Items
Bookednet ass et value (endof December 2010)
Total amount
Adjustednet asset value (endof December 2010)
Bigbang DD report Slide 21
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Case study - RIC
Read 3 recent years RICs financialstatements
Comments on factors that can affect netreal asset value of the firm
15 minutes for reading
15 minutes for discussion
Slide 22
Short Group Presentation Homework
Find 3 recent years audited financial statements ofKMR (Cong ty Co phan Mirea - HOSE)
Investigate relevant information of KMR
Comments on factors that can affect net realasset value of the firm
Group presentation:
2 group will do presentation
10 minutes for each groups presentation
10 minutes for discussion among class
Slide 23
Virtual Assets
Firm value do not only include net real assetsbut also virtual assets that results from:
Value of human resource includingmanagement
R&D
Brandname
Distribution channel
Others
These virtual assets were not recorded in thebalance sheet of the firm.
Slide 24
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Contingent liabilities
Potential penalties
Warranty obligations
Guaranties
Legal disputes
Potential tax obligations
Business commitments
Contingent liabilities were not recorded in thebalance sheet of the firm
Slide 25
Discounted Cash Flow (DCF)
Determine forecasted free cash flow of thefirm
Normally, at least 5 years in the future
Using WACC as discounted rate
WACC depends on risk of the firm
Slide 26
Discounted Cash Flow (DCF)
WACC = E/(D+E) x Re + D/(D+E) x Rd
In which:
E: Market value of equity
D: Market value of debts Re: Cost of equity determined by equity
investors desire using CAPM model
Rd: Cost of Debts determined by loaninterest, firm ratings
Slide 27
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Phn tch Ngnh (5-Forces Model)
Mt doanh nghip b hn ch vi c im ngnhkinh doanh m doanh nghip ang hot ng
Xc nh ngnh kinh doanh Ngnh kinh doanh rng
Ngnh kinh doanh hp
Xc nh theo vng a l (V d: cn thp min bcv min nam, Bt ng sn H Ni, TP.HCM)
Slide 28
Phn tch Ngnh (5-Forces Model)
Mt doanh nghip b hn ch vi c im ngnhkinh doanh m doanh nghip ang hot ng
Xc nh ngnh kinh doanh Ngnh kinh doanh rng (Ngnh vin thng)
Ngnh kinh doanh hp (Ngnh dch v internet)
Xc nh theo vng a l (V d: cn thp min bcv min nam, Bt ng sn H Ni, TP.HCM)
Slide 29
Phn tch Ngnh (5-Forces Model)
Mt doanh nghip b hn ch vi c im ngnhkinh doanh m doanh nghip ang hot ng
Xc nh ngnh kinh doanh Ngnh kinh doanh rng (Ngnh vin thng)
Ngnh kinh doanh hp (Ngnh dch v internet)
Xc nh theo vng a l (V d: cn thp min bcv min nam, Bt ng sn H Ni, TP.HCM)
Slide 30
7/30/2019 Due Dilligence - VCU
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Phn tch ngnh: S cn thit
Vn vay90%
Vn ch 10%
Cu trc vn Cu trc vn ny tt
hay khng tt?Cng ty kim ton
Viettel
Vinaconex
Vietcombank
Slide 31
Slide 32
Phn tch ngnh: Chu k ngnh
Doanh thu
Li nhun
Khi ng Tng trng Bo ho Suy thoi
Kimton
Vinthngdi ng
Hngkhng
$
Thi gian
Phn tch ngnh: Cnh tranh - M hnh 5F
Mc cnhtranh gia ccdoanh nghip
Quyn mphn ca
khch hng
Se doca ith mi
T sutsinh li
Se doca snphm thay
th
Quyn mphn canh cung
cp
M hnh 5 nhn tcnh tranh caMichael E. Porter
Slide 33
7/30/2019 Due Dilligence - VCU
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M hnh 5 nhn t cnh tranh
Nhn t 1: Mc cnh tranh gia cc doanhnghip trong cng ngnh
T l tng trng ngnh (Ph thuc vo chu k ngnh) Mc tp trung trong ngnh: 4 doanh nghip dn u
chim 60% th phn th c coi l mc tp trung cao
Kh nng to khc bit (Differentiation)
Chi ph chuyn nh cung cp
Kh nng tn dng li th v quy m
Chi ph thoi lui (Exit barriers)
Slide 34
M hnh 5 nhn t cnh tranh (Tip)
Nhn t 2: Se do ca i th mi Kh nng tn dng li th v quy m
Kh nng gia nhp vo h thng phn phi
Cc ro cn php l
Nhn t 3: Se do ca sn phm thay th So snh gia gi v kh nng p ng nhu cu (V d: hng
khng v ng st, GSM v 3G, )
Kh nng chuyn i sang s dng sn phm thay th cakhch hng
Slide 35
M hnh 5 nhn t cnh tranh (Tip)
Nhn t 4: Quyn m phn ca khch hng Mc nhy cm v gi ca khch hng Chi ph chuyn sang nh cung cp mi ca khch hng Kh nng to khc bit ho (iPhone) s lng khch hng
Khi lng trung bnh mua bi mt khch hng
Nhn t 5: Quyn m phn ca nh cung cp Mc nhy cm v gi ca khch hng Chi ph chuyn sang nh cung cp mi ca khch hng Kh nng to khc bit ho (iPhone) s lng nh cung cp Khi lng trung bnh bn bi mt nh cung cp
Slide 36
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Slide 37
Phn tch ngnh: V th trong ngnh
Viettel?
Th phn tng i so vi i th cnhtranh gn nht
Tc tng
trngca
ngnh
Researcher & Educator
www.kiemtoan.com.vn